The Chips are Down
On September 17th, I noted the extremely high level of assets in the Rydex Electronics fund and said that past instances of what we were seeing corresponded quite well with at least short-term exhaustion points in the Semiconductors Holdrs Trust (SMH). It turns out that pattern continued, since semi's as a group have declined about 8% from that point.
Last night, Rydex traders pulled a significant chunk of money out of that fund, apparently convinced that electronics-related issues are headed lower. In fact, assets in the fund are down 60% from where they were on the 17th. The chart I showed then was of a simple index I create by taking the assets in the fund divided by the price of SMH itself. I have re-created the chart below, and as we can see it is currently at 1.4 - the lowest level since March 12th.
Each of the other dips in the index below 1.75 or so has marked the end of the correction (within a day or two) in SMH since the rally began in March. Whether that will continue or not, I have no idea, but from this we can at least see that one segment of traders has given up the ship to a degree not seen in six months.
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